Good Business: Is Corporate Social Responsibility Profitable?

“There is one and only one social responsibility of business―to use its resources to increase its profits,” wrote Noble prize-winning economist Milton Friedman. This quote is often used to summarize why Corporate Social Responsibility (CSR) is little more than a PR issue, useful for consumer driven industries to increase their reputations, but little else. Reading the often ignored second part of Friedman’s quote, “so long as it stays within the rules of the game,” gives the “PR argument” some pause.

Increasingly, the rules of the game, and even the playing field, are changing. Companies from all sectors are having to confront, and adapt to, a range of disruptive forces, including an increasingly interconnected and technologically savvy world, and intense competition for raw materials and natural resources. Increased awareness of international labour codes, human rights and climate change, and an explosion in online social networking is making companies more accountable. Consumers, NGOs, the media, and their own employees are holding companies responsible for their treatment of workers, the sourcing and quality of their products, and their corporate culture. Faced with the need to be more accountable to, and transparent with, all their stakeholders and concerns about access to raw materials and availability of natural resources, CSR is moving from the sidelines and into the game.

Not too long ago businesses were seen as adversarial to climate change and social justice was seen as off-limits to corporations. CSR trends in 2015 are showing that this is no longer the case, as companies actively fight for social justice and champion climate change. At the 2015 Paris Climate Conference, corporate players stepped up to lead talks and deals aimed at curbing the consequences of climate change. Brands, including Jell-O and American Airlines showed their support for LGBTQ rights through their support of #LoveWins campaign. Even luxury brands are responding to their stakeholders by making their environmental profit and loss accounting statements public.

These behaviours are result of a change in consumer priorities. According to a 2015 report by Price Waterhouse Cooper, 78% of consumers would change their behaviour based on companies’ social justice and sustainability practices. Millennials (age 21-34) have been shown as the most committed due to their increased awareness of social and environmental issues. On average, over 50% of Millenials are willing to pay extra for sustainable products and check the packaging for a sustainable liable. There is a clear generational disparity that is most strongly felt in the Asia-Pacific and Middle East/Africa regions, where Millennial are three times more agreeable to sustainability actions than Generation Xers (age 35-49) and 12 times more agreeable than Baby Boomers (age 50-64).

These generational disparities may help to explain why, on average, companies have not seen their CSR practices improve their overall financial performances. There is no evidence to support that those firms with CSR strategies are doing worse than those without, but neither is there strong evidence to support the other side. There are individual examples of firms who have benefited greatly from strong CSR initiatives (including Google, Target, and Xerox) but there are also firms that have done well with poor CSR reputations. Many companies see sustainable products as a niche market that does not affect their bottom line enough to warrant a change in the way they do business. Still other businesses, particularly those with a limited consumer focus, and in circumstances, in which profits and social welfare are in direct opposition, see no benefit to increasing their CSR practices. On the other side are companies where social welfare and profit making are aligned, making CSR irrelevant. All these companies need do is everything they can to boost profits and social welfare will follow.

Companies whose profits align with social welfare may not need to create a separate CSR department, but the vast majority of companies for which this is not the case probably shouldn’t discount CSR. According to a recent Price Waterhouse Cooper report, putting sustainability into the heart of a business plan now will provide a competitive edge in the near feature. As Millenials gain increasingly higher shares of the market, Baby Boomers and Generation Xers leave and natural resources become ever more restricted, the triple bottom line approach to business will take centre stage. Now is the time smart companies will find ways to integrate economic, environmental and social imperatives. Those who choose to cling to their “golden past” may find themselves holding fools gold.

 

Photo: By European Commission DG ECHO via Flickr. Licensed under CC BY 2.0.


Disclaimer: Any views or opinions expressed in articles are solely those of the authors and do not necessarily represent the views of the NATO Association of Canada.

Natasha Dobrijevic

About Natasha Dobrijevic

Natasha is a current Program Editor at the NATO Association of Canada. Prior to joining the NATO Association of Canada, Natasha spent two years working in Gender and Educational Programming with Save the Children and Plan Canada. She has spent a little over four of the past ten years working and studying abroad in three regions and four countries, gaining hands on experience in Arab women’s education through her work at Princess Nora University in Saudi Arabia. She currently holds an MA in International Relations from the University of Barcelona, is fluent in four languages, and has gone volcano boarding. You can contact Natasha by email at natasha.dobrijevic@gmail.com.